Cost of living
Action demanded as inflation at 40-year high of 9%
Inflation soared to a 40-year high of 9% in April as millions of households were hit by soaring energy bills.
The surge in the cost of living from 7% in March is adding pressure on Chancellor Rishi Sunak to act quickly to ease the crisis and is likely to prompt a further rise in interest rates next month.
Tory MPs have joined the chorus of calls for action such as a cut in VAT, increases in energy discounts, and an uplift in Universal Credit. Mr Sunak is expected to announce an energy discount in July and is working on a tax cut to be announced in the autumn.
Responding to today’s figure, Mr Sunak said: “Countries around the world are dealing with rising inflation. Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.
“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.
“We’re saving the average worker £330 a year through reducing National Insurance Contributions, changing Universal Credit to save over a million families around £1,000 a year, and providing millions of families with £350 each this year to help with their energy bills.”
Rachel Reeves, Labour’s Shadow Chancellor, said: “While they pile taxes on working people in the midst of this crisis the Conservatives voted last night against a windfall tax on oil and gas producer profits to cut families’ energy bills.
“We need an Emergency Budget now from the government to tackle the cost of living crisis, and we need a real plan for growth so we have a fairer and more prosperous economy.”
Suren Thiru, head of Economics at the British Chambers of Commerce, described the jump in inflation as “eye-watering” and said it underscores the damaging squeeze on firms’ ability to invest and operate at full capacity.
“Soaring inflation means that a June interest rate rise is inevitable. However, higher interest rates will do little to address the global factors driving this inflationary surge and risks undermining confidence and aggravating the financial squeeze on consumers and businesses.
“Although surging global energy and commodity prices aren’t typically something in the UK government’s direct control, more needs to be done to help consumers and businesses through this difficult period.
“This should include reversing the rise in National Insurance Contributions and cutting VAT on business energy bills to 5%.”
Rain Newton-Smith, CBI chief economist, said: “Turning good intentions on a permanent investment deduction into a firm commitment, setting out an infrastructure roadmap and publishing a digital strategy are steps which can be taken without delay.”
Michael Hewson, analyst at CMC Markets, said: “Not only are consumers having to contend with higher gas and electricity prices, but also higher food and petrol prices, along with higher council tax, streaming subscriptions, gym memberships and other discretionary costs, as well as a pound that is 9% lower against the dollar from a year ago.”
On Monday, the Bank of England governor Andrew Bailey said he was unable to stop UK inflation hitting 10% this year, as most of the factors were beyond the BoE’s control, with the Ukraine war risking “apocalyptic” food prices.
Scottish retail sales were marginally down in April compared to the same period prior to the pandemic.
David Lonsdale, director at the Scottish Retail Consortium, said: “Household finances are under strain as inflation, tax rises and other bills take a bite out of shoppers’ purses and wallets. Disposable incomes simply do not stretch as far as they used to, presenting Scotland’s retailers with a more challenging marketplace.”
Paul Martin, UK head of retail at KPMG, said: “The cost-of-living crisis came home to roost for Scottish retailers in April, with sales growth stalling after a relatively promising start to the year.
“Pressure on consumers tightened considerably with the increase in energy tariffs and the higher cost of food and other commodities. Easter holiday spending helped food sales grow, and while they are ahead of pre-pandemic levels, are unremarkable when inflation is taken into consideration.
“Against the backdrop of falling consumer confidence and a possible recession ahead, the retail sector faces a bumpy road with cost pressures from all directions.
“Many retailers may benefit from pent up demand in the short-term although in the mid-term will have no choice but to raise prices to protect margins. But the longer we see high inflation and real household incomes falling, the more likely it is that consumers will change their spending behaviour, prompting a decline in the health of the retail sector and possibly more casualties on the high street.”
… more follows